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We have seen that the ATO as part of their work on the Tax Avoidance Task force, is looking at a number of arrangements in the healthcare services industry where a lump sum payment is made and treated as a capital gain instead of ordinary income. These arrangements typically involve a healthcare centre operator paying a lump sum to a healthcare practitioner, their private company or their family trust when they commence or continue to provide healthcare services at that centre.
The ATO are of the view that generally these lump sum payments are not capital receipts but are income. The lump sum will typically be ordinary income of the practitioner for providing services to their patients from the healthcare centre. The result is that practitioners are required to include the full amount of the lump sum payment in their accessible income. This is in accordance with section 6-5 of the Income Tax Assessment Act 1997.
Incorrectly treating these payments as capital gains instead of ordinary income may result in an underpayment of tax and potentially expose you to tax adjustments and penalties.
What you need to do.
If you are considering any arrangements that relate to a lump sum payment for commencing or providing ongoing healthcare services, you should note that the ATO:
- have concerns with those payments being mistakenly treated as capital gains
- are looking closely at these arrangements to determine if they are compliant with income tax laws and whether the anti-avoidance provisions may apply.
The ATO are aware that some practitioners are using a private ruling that was issued to another taxpayer:
- You can only rely on a private ruling if you applied for it.
- From 2013, the ATO have consistently issued private rulings on these or similar arrangements treating the whole of the lump sum payment as assessable ordinary income.
Where to go for help
If you have entered, or are planning to enter, into an arrangement of this type we encourage you to seek independent professional advice from us before you commit and we can ensure you get the best result. You can contact us at Geelong Premier Bookkeeping.